Unemployment hits 5.2%

By Chris Zappone

12 March 2009 — 11:31am

Australia's unemployment rate has hit 5.2% after the economy suffered the biggest monthly drop in full-time jobs since 1991.

The jobless rate is now the worst it has been in four years, further proof the economic downturn is getting worse and adding to the case for another rate cut when the Reserve Bank board next meets early in April.

Data released today by the Australian Bureau of Statistics show that, in February, 53,800 positions were lopped out of the economy but 55,600 part-time positions were created, leaving a net increase of 1800, seasonally adjusted. That follows a downwardly revised gain of 300 jobs in January.

Economist Matt Robinson from Moody’s Economy.com said the plunge in full-time jobs suggested that "a lot of households are under mortgage stress and the second person in the household is being pushed back into the labour force to make ends meet".

The full-time drop will worry policy makers, he said, because "a lot of the stresses of a downward moving economy start to really present [themselves]".

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Prime Minister Kevin Rudd and Employment Minister Julia Gillard, speaking after the data's release, said the job market would have weakened further if not for Government’s $52 billion worth of stimulus packages.

Opposition Leader Malcolm Turnbull called the rising unemployment rate part of a "terrible trifecta" that included increased spending and more industrial disputes under the Labor Government.

February's data shows the biggest drop in full-time positions since July 1991, when 79,400 full-time jobs were lost - and the nation was officially in recession.

The data show that, in New South Wales, the jobless rate climbed from 5.5% to 5.8%. In Victoria it jumped sharply, from 4.8% to 5.6%. In Queensland it was up by 0.1 percentage point to 4.5% and, in fellow mining state Western Australia, it rose from 3.3% to 4.2%.

The drop in full-time jobs "is bad in terms of household income because the composition of employment is shifting away from full time to part time", said ANZ economist Riki Polygenis. "Which means the average pay intake is going down."

This could affect consumer demand, which in turn would undermine economic growth, she said.

Economists agreed that the higher-then-expected unemployment rate, along with the collapse in full-time jobs, will be noted by the Reserve Bank as it considers another interest rate cut next month.

"Today's sharp increase in the unemployment rate supports the view that the pause in the RBA's interest rate cutting cycle may be short-lived," St George economist Amanda Tan said in a statement.

"We see the risk of a 50 basis point rate cut by the RBA next month."

Credit rate expectations remained steady after the data was released, with markets forecasting a 50 basis point cut to the 3.25% interest rate in April, according to Credit Suisse.

The dollar was largely unchanged, trading up slightly to 65.07 US cents, from 64.89 before the data was published.

The unemployment rate last month rose to 5.2%, compared with 4.8% at the end of January and more than the 5% forecast by analysts.

Economists had tipped 20,000 positions would be wiped out in February.

A number of companies have announced job cuts in the past few weeks, including clothing manufacturer Pacific Brands, which cut 1850 jobs.

Bank of Queensland said it would slash 150 positions, or 10% of its staff. Miner Anglo American let go of 650 people from coalmines in Queensland and New South Wales because of slumping demand.

Economists from JPMorgan expect the unemployment rate to rise as high as 9% by the end 2010, as the slowdown ripples through the economy, halting companies' expansion plans and triggering more retrenchments.

And Monash University professor Peter Dixon told a Senate inquiry last month that economic modelling suggests the nation could lose up to half a million jobs by the end of 2010.

Moody's Mr Robinson said the gap between full- and part-time employment means "more people have been involuntarily moved to part-time work because there isn’t enough work to justify the full-time position and employers are cutting back their hours".

"When you get a huge loss in full-time jobs it means you don’t see any bottom that is forming [in the weakening economy]," he said. "It means the economy is still deteriorating."

The participation rate grew to 65.5% in February from 65.1% in January, the ABS data showed, suggesting, "more people are entering - or staying in - the workforce to try and make financial ends meet", wrote JPMorgan economist Helen Kevans.

"In this recession, we suspect that labour force participation will be slow to decline, which will inflate the unemployment rate," she wrote, pointing to more skilled migrants and "older workers staying in the work force longer than they had planned to compensate for the fact that their retirement funds have dwindled".

Superannuation returns have been devastated by the plunges on the sharemarket, hitting retirees and workers near retirement age.

Forward looking indicators have painted a grim picture of the jobs market, with both the Department of Employment and Workplace Relations monthly leading indicator and the ANZ jobs ad gauge lower.

The DEEWR’s monthly leading indicator dipped for the 15th consecutive month, to -0.421 in March from -0.216 in February.

"The indicator continues to confirm a slowdown in the pace of employment growth below its long-term trend of 2.3% per annum," DEEWR said.

This week, the ANZ survey of combined print and online job ads dropped 10.4%, the most on record, as employers scale back hiring plans and cut staff.